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Several Catholic dioceses declared bankruptcy on eve of sexual-abuse trials

Center for Investigative Reporting
Catholic dioceses declare bankruptcy on eve of sexual abuse trials
MinnPost photo by Rita Kovtun
The Archdiocese of St. Paul and Minneapolis maintains that it is not trying to skirt responsibility or deflect difficult questions by filing for bankruptcy, but instead trying to fairly dole out compensation to abuse victims.

The Rev. Thomas Stitts was known within the Roman Catholic Archdiocese of Saint Paul and Minneapolis as a priest who molested boys.

But three civil trials on abuse that were supposed to start a week ago never did. Instead, the archdiocese filed for bankruptcy, becoming the 12th Roman Catholic diocese in the last decade to declare bankruptcy amid a wave of clergy abuse lawsuits.

Stretching from Delaware to Alaska, these bankruptcy proceedings often have taken years to hammer out, as the church and victims negotiate the terms of how much victims should be compensated. The payouts to victims have been in the millions of dollars – in San Diego, the diocese paid more than $198 million to 144 abuse victims, the largest clergy sexual abuse settlement to date.

Bankruptcies can help to bring order to chaos, says Pamela Foohey, an associate professor at Indiana University’s Maurer School of Law. They ensure that hundreds of lawsuits become more manageable and that all victims get paid – not just those who file cases early.

But victim advocates and attorneys say churches that declare insolvency often do it for a less noble purpose. They say it has become a go-to move for dioceses to stop damaging trials and avoid putting church officials on the witness stand.

“Bankruptcies don’t protect kids,” said victims attorney Patrick Noaker, whose suit against Stitts was supposed to go to trial last week. “Trials and disclosures do.”

The archdiocese maintains that it is not trying to skirt responsibility or deflect difficult questions by filing for bankruptcy, but instead trying to fairly dole out compensation to abuse victims.

“We have all been devastated by revelations of the stories from those who have been hurt by clergy sexual abuse,” Archbishop John Nienstedt wrote in a letter to the congregation announcing the bankruptcy. “I make this decision because I believe it is the fairest and most helpful recourse for those victims/survivors who have made claims against us.”

Noaker’s suit argues that the archdiocese knew that Stitts was a child molester but recklessly and negligently failed to investigate or remove him from work involving children. Stitts died in 1985, but the suit argues that archdiocese officials could have stopped the abuse.

Archbishop John NienstedtArchbishop John Nienstedt

A priest who worked with Stitts in 1966 noticed that he acted strangely around altar boys, according to a civil negligence complaint. Then there was the schoolboy a year later who told his principal that Stitts had touched him inappropriately. The archbishop of the St. Paul and Minneapolis archdiocese was told sometime between 1970 and 1973 that Stitts had sexually abused a boy at St. Leo’s Church in St. Paul, but didn’t say anything or investigate the priest. And then another male student from St. Leo’s told his mother that Stitts had sexually abused him – and his mother told another Catholic priest.

The archdiocese had been warned about Stitts at least three times before 1973, when the priest went on to abuse a preteen boy in a swimming pool, according to the complaint filed against the Archdiocese of Saint Paul and Minneapolis.

On Jan. 26, that case was one of the three headed for trial. The victim, identified only as John Doe 104, was about to have his day in court. But now there’s little chance the case will see the light of a public courtroom.

The archdiocese – with 187 parishes with 825,000 parishioners – had filed for Chapter 11 protection in U.S. Bankruptcy Court in St. Paul 10 days earlier. The bankruptcy filing indicated the church system had estimated liabilities of $50 million to $100 million, while its estimated assets were $10 million to $50 million. The archdiocese is facing more than 20 sexual abuse lawsuits with another 100 pending.

Declaring bankruptcy allows the church time to negotiate settlements with victims, organize its assets in a reorganization plan and ensure that victims get some sort of financial compensation for the alleged abuse.

But many see bankruptcy as a way to stop lawsuits that would force church officials to publicly testify about how they handled – or avoided – allegations of child abuse.

“The archdiocese was scared of officials getting on the witness stand and answering difficult questions about how they handled sexual abuse. So they avoided the issue and declared bankruptcy,” said Noaker, the attorney. “That’s not the sign of an organization committed to transparency and helping children.”

Bankruptcies are federal filings that automatically freeze civil lawsuits until the bankruptcy is complete – which can take years – and bar any future lawsuits. Suits are frozen while the archdiocese inventories its assets and establishes a trust from which victims are then paid. Legally, a trial can continue after the bankruptcy is complete, but that is extremely rare.

According to Noaker, who has been involved in a number of diocese bankruptcy proceedings, no sexual abuse cases against a diocese that were set to go to trial and then paused by church bankruptcy have made it back to a public courtroom. All were settled by other means.

Most of the 12 Catholic dioceses that have filed for Chapter 11 bankruptcy did so on the eve of public trials. The Archdiocese of Portland, Oregon, filed for bankruptcy in 2004 before jury selection in a negligence lawsuit, according to the Star Tribune of Minneapolis. In San Diego in 2007, the diocese filed for Chapter 11 hours before the first of more than 40 sexual abuse lawsuits.

“These bankruptcies always happen right before big trials,” said Barbara Dorris, victims outreach director of the Survivors Network of those Abused by Priests, or SNAP. “Then trials are stalled. All discovery stops. All documents remain secret. We feel it’s far less about money or the victims than protecting church documents and secrets.”

The Archdiocese of Milwaukee’s bankruptcy is in the midst of a thorny fight now in its fourth year as lawyers determine the settlement amounts for victims.

That bankruptcy, filed in 2011, is being held up by the question of whether sexual abuse victims can be paid with more than $50 million that sits in a cemetery trust. Victim advocates say the archdiocese deliberately moved millions into this trust when it declared bankruptcy. A 2007 letter from then-Archbishop Timothy Dolan to the Vatican said creating the cemetery trust would offer “improved protection of these funds from any legal claim and liability.”

The archdiocese argues, however, that tapping the cemetery funds would violate its religious expression, which stresses the importance of burial, and taking the money would violate its First Amendment rights and a 1993 law called the Religious Freedom Restoration Act.

In 2013, a federal judge in Wisconsin agreed with the church. The case is on appeal in the 7th Circuit Court of Appeals.

Foohey, the law professor, said the ruling could be a test case for whether other dioceses facing sexual abuse claims opt to go the bankruptcy route – “it will show dioceses how far they can go to move their assets.”

She compiled this list of 12 dioceses that have declared Chapter 11 bankruptcy in the last decade, along with the settlement amounts and the time it took to complete the bankruptcy:

  1. Archdiocese of Portland, Oregon

Case information: District of Oregon, No. 04-37154, Judge Elizabeth L. Perris

Timeline: Bankruptcy filed July 6, 2004; plan confirmed April 13, 2007; 2.77 years to confirm

Plan details: $75 million settlement; $40.7 million will go to 143 people, $13.75 million will be allocated to cover claims by 26 individuals who may yet sue or settle, and $20 million will be set aside as a contingency fund to cover any future claims. Insurance will cover over $50 million, with the remainder coming from liquidation of certain diocesan holdings, not including parish or school property.

  1. Diocese of Tucson, Arizona

Case information: District of Arizona, No. 04-04721, Judge James M. Marlar

Timeline: Bankruptcy filed Sept. 20, 2004; plan confirmed Aug. 1, 2005; 0.86 years to confirm

Plan details: $22.2 million settlement for more than 50 claims of clergy sexual abuse of children; victims or their relatives initially will be compensated $15,000 to $600,000 each, depending on the severity of the abuse and its effect on the victim; of some $9.6 million to be disbursed initially to the 25 primary claimants whose settlement is fully decided, the bulk – a little over $6.8 million – is to go to 14 victims judged to have been most severely abused, and none is to receive less than $200,000.

  1. Diocese of Spokane, Washington

Case information: Eastern District of Washington, No. 04-08822, Judge Patricia C. Williams

Timeline: Bankruptcy filed Dec. 6, 2004; plan confirmed April 24, 2007; 2.38 years to confirm

Plan details: $48 million settlement for child molestation charges; about $20 million of the settlement will come from six insurance carriers, about $18 million will come from the sale of the bishop’s office building and other assets, and about $10 million will come from the diocese’s 82 parishes. About 150 claimants will qualify for payments under the plan, with each victim set to receive $15,000 to $1.5 million, depending on the extent of the abuse.

  1. Diocese of Davenport, Iowa

Case information: Southern District of Iowa, No. 06-02229, Judge Lee M. Jackwig

Timeline: Bankruptcy filed Oct. 10, 2006; plan confirmed May 1, 2008; 1.56 years to confirm

Plan details: $37 million settlement with creditors funded with $33.1 million in cash and the transfer of the diocese’s chancery property, which had an appraised value of $3.9 million; cash payment to the settlement trust came from a $19.5 million settlement payment by Travelers Insurance, a $5.9 million payment by Catholic entities and a $7.7 million payment by the diocese; court-appointed arbitrator decided which of the 165 creditors received a settlement and for how much.

  1. Diocese of San Diego

Case information: Southern District of California, No. 07-00939, Judge Louise DeCarl Adler

Timeline: Bankruptcy filed Feb. 27, 2007; case dismissed Nov. 16, 2007; 0.72 years to dismiss

Dismissal details: $198.1 million settlement to 144 people who have said they were sexually abused by clergy members; the San Diego diocese would pay $77.1 million and its insurance carrier $75.7 million, for a total of $152.8 million covering 111 cases. In addition, the diocese would pay $30.2 million for 22 cases involving members of religious orders, and the Diocese of San Bernardino would pay $15.1 million for 11 cases in its area.

  1. Diocese of Fairbanks, Alaska

Case information: District of Alaska, No. 08-00110, Judge Donald MacDonald IV

Timeline: Bankruptcy filed March 1, 2008; plan confirmed Feb. 17, 2010; 1.97 years to confirm

Plan details: $9.8 million settlement to go to 290 sexual abuse victims; diocese pieced together money for the settlement mainly from the sale of properties to its own endowment; diocese still will be able to use those properties –which include Catholic schools, the diocese offices and the Kobuk Center, where the bishop lives; in addition, parishes are paying $650,000, and Alaska National Insurance Co. is paying $1.4 million.

  1. Diocese of Wilmington, Delaware

Case information: District of Delaware, No. 09-13560, Judge Christopher S. Sontchi

Timeline: Bankruptcy filed Oct. 18, 2009; plan confirmed July 28, 2011; 1.78 years to confirm

Plan details: $105 million settlement for 150 survivors, which includes $77.5 million from the diocese and related Catholic entities and the balance from a religious order that was a co-defendant on many claims.

  1. Archdiocese of Milwaukee

Case information: Eastern District of Wisconsin, No. 11-20059, Judge Susan V. Kelley

Timeline: Bankruptcy filed Jan. 4, 2011; plan filed Feb. 12, 2014; plan not yet confirmed

Plan details: $4 million settlement to about 125 victims of childhood sexual abuse (less than a quarter of all claims from the total of 575 victims); would pay $7,000 to each of the 575 victims if archdiocese decides to pay them all. The main issue holding up the plan is a $57 million cemetery trust fund.

  1. Diocese of Gallup, New Mexico

Case information: District of New Mexico, No. 13-13676, Judge David T. Thuma

Timeline: Bankruptcy filed Nov. 12, 2013; no plan filed as of Jan. 25, 2015

  1. Diocese of Stockton, California 

Case information: Eastern District of California, No. 14-20371, Judge Christopher M. Klein

Timeline: Bankruptcy filed Jan. 15, 2014; no plan filed as of Jan. 25, 2015

  1. Diocese of Helena, Montana

Case information: District of Montana, No. 14-60074, Judge Terry L. Myers

Timeline: Bankruptcy filed Jan. 31, 2014; plan filed Nov. 17, 2014; plan amended Jan. 20, 2015

Plan details: $16.4 million settlement for 362 victims to receive a minimum payment of $2,500 each; plan calls for insurance companies to contribute $14.4 million to the trust, while the diocese is asking the court’s approval for a $3.5 million loan so it can contribute $2 million to a trust and cover administrative and operating expenses.

  1. Archdiocese of Saint Paul and Minneapolis

Case information: District of Minnesota, No. 15-30125, Judge Robert J. Kressel

Timeline: Bankruptcy filed Jan. 16, 2015

Amy Julia Harris can be reached at aharris@cironline.org. Follow her on Twitter: @amyjharris.

This article appeared in the Center for Investigative Reporting.

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Comments (2)

Why bankruptcy?

I see a lot of commentary about bankruptcy, but not much discussion of why it makes sense, and indeed can be fair to creditors to declare bankruptcy.

When an entity is in extreme financial distress, it's affairs become disorderly. People won't extend it the most routine forms of credit. Anyone with a cause of action brings it immediately, hoping to get paid before the money runs out. In the case of a charity like a church, donors will stop giving it money because they know the funds won't be used in any way they intend. In effect, the gravitational pull of bankruptcy hurts everyone, the creditors, the customers, in the case of a church, the faithful, and so a declaration of bankruptcy becomes the inevitable and indeed responsible choice.

We are failed

After writing the Undiscovered Self (1959) Carl Jung commented that Americans had become so superficial that within a generation or two they would be unable to recognize evil or their participation in it. Americans that still defend the Catholic Church after the Church's internal emails and correspondence have been made public prove Jung was spot on.